Radiant Logistics, Inc.
Q3 2021 Earnings Call Transcript

Published: 11 May 2021

[Operator:]

This afternoon, Bohn Crain, Radiant Logistics’ Founder and CEO and Radiant’s Chief Financial Officer, Todd Macomber, will discuss financial results for the company’s Third Fiscal Quarter and Nine Months ended March 31, 2021. Following their comments, we will open the call to questions. This conference is scheduled for 30 minutes. This conference call may include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The company has based these forward-looking statements on its current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about the company that may cause the company’s actual results or achievements to be materially different from the results or achievements expressed or implied by such forward-looking statements. While it is impossible to identify all the factors that may cause the company’s actual results or achievements to differ materially from those set forth in our forward-looking statements. Such factors include those that have in the past and may in the future be identified in the company’s SEC filings and other public announcements, which are available on the Radiant website at www.radiantdelivers.com. In addition, past results are not necessarily an indication of future performance.

[Bohn Crain:]

Thank you. Good afternoon, everyone and thank you for joining in on today’s call. We are very pleased to report another quarter of solid financial results, including new records for the March quarter across a number of key financial metrics. We posted record revenues of $236.5 million, up $59.3 million or 33.5%; record net revenues of $56.8 million, up $9 million or 18.8%; record net income of $5 million, up $4.9 million. Record adjusted net income of $9.1 million, up $5.1 million or 127.5%; and record adjusted EBITDA of $12.9 million, up $6.8 million or 111.5%. In addition, we also saw improvement in our adjusted EBITDA margins which increased to a record 22.7% for the March quarter, up from 12.7% for the comparable prior year period. These results reflect the benefit of our scalable non-asset-based business model, diversity of our service offerings and our ability to quickly respond to the changing market dynamics. In addition, we have been able to deliver these record results while maintaining very low leverage on our balance sheet. We are encouraged by our continued strong financial performance with trailing 12-month adjusted EBITDA through March 31 of $47.8 million. At the same time, we also believe that our current share price does not accurately reflect Radiant’s intrinsic value or long-term growth prospects, particularly given our un-levered balance sheet, and therefore, represents an excellent investment opportunity for both the company and our shareholders. With the diversity of our customers, the strength of our balance sheet, the scalability of our technology, the commitment of our employees and the eventual recovery of the business sectors that have been mostly adversely affected by COVID-19. We remain optimistic about the trajectory of the economy and the opportunities that it will present for Radiant. In the months ahead, we will continue to closely monitor how we and the economy are progressing, and look forward to reengaging in acquisition opportunities and/or our stock buyback activities as the opportunities present themselves. With that, I will now turn it over to Todd Macomber, our Chief Financial Officer, to walk us through our detailed financial results. And then, we will open it up for some Q&A.

[Todd Macomber:]

Thanks, Bohn and good afternoon everyone. Today, we will be discussing financial results, including adjusted net income and adjusted EBITDA for the 3 and 9 months ended March 31, 2021. For the 3 months ended March 31, 2021, we reported net income attributable to Radiant Logistics of $4.984 million on $236.5 million of revenues or $0.10 per basic and fully diluted share, which included a charge of $2.5 million for change in contingent consideration, partially offset by a gain of $1.4 million for forgiveness of debt.

[Operator:]

Thank you. And our first question today is coming from Jason Seidl at Cowen. Your line is live.

[Jason Seidl:]

Thank you, operator. Hey, Bohn. Hey, Todd. How are you guys, doing?

[Bohn Crain:]

Good. How are you, Jason?

[Jason Seidl:]

Doing great. I am hanging in there guys. Question on the free cash going forward, you said obviously you are going to look at the acquisition front as well as stock buybacks, talk a little bit about the opportunity for acquisitions, because I know that market can be fickle at times and finding the right amount and then maybe even converting some of your agents. And also talk a little bit about when the right time is to pull the trigger on the stock buyback because you guys have had buybacks in the past where you really haven’t done much with them, you have done just a little bit?

[Bohn Crain:]

Yes, sure, Jason. So I guess to put this in a little bit of context, as we were kind of – I guess what I’ll characterize as before COVID hit, we had begun to ramp back up our stock buyback program and had begun to actively reengage in M&A-type conversations and try to kind of rebuild that pipeline. Ultimately, when COVID hit, we pushed the pause button on some of those things. But this time last year, I think we were $2 million or $3 million into our stock buyback, and we were kind of beginning that process. I think as we have alluded to on a few of our earlier calls, until we kind of find our way through the PPP loan forgiveness process, we probably won’t be active in the stock buyback or at least that’s the current thinking, but that in and of itself will probably come to closure, hopefully, in this June quarter one way or the other, and we remain optimistic that we will get a positive kind of outcome of that process, but we just have to wait and see how the powers that be interact with us around those concepts. In terms of baseline plan, I think our baseline plan remains to effectively take half of our free cash flow and do smaller tuck-in type acquisitions and the other half as appropriate, get active again on the stock buyback. Again, as you alluded to, Jason, there – as we think about acquisitions, they can take a lot of different flavors, but we have kind of the most – the low hanging fruit, if you will, or the most easily accomplished our conversions of agent base stations. I think it was a year ago, February, while we – it was the last acquisition we did do, and it was – where we bought in agent station, an owner or partner with operations in Washington, D.C. and Pittsburgh. So, that remains an area of interest, but we are really taking a broad view of the opportunity set. Again, as we’ve talked about in the past, we really think we have three functional platforms to support M&A opportunities

[Jason Seidl:]

Yes. I was just a little bit surprised you talked so much around the acquisition side. Only in that, what we’ve been hearing in the marketplace is that multiples are extremely high right now for a lot of companies. And given that the multiple of your own stock is so much lower, it would seem to be I guess a better value if you will unless something specific came up?

[Bohn Crain:]

Yes. Well, again, just to kind of drill down on that a little bit further historically. And even as we think about the opportunity set today, we more likely than not will be looking at smaller tuck-in type acquisitions where kind of valuations, multiples and structures are more favorable than going out and trying to acquire a $15 million or $20 million EBITDA business because, to the extent that we would do that, we would run into the very challenges that you are alluding to.

[Jason Seidl:]

So, the ones we should expect would be smaller then?

[Bohn Crain:]

To it. Yes. I mean I don’t want to leave the listeners with the expectation we would never do a larger deal because I never want to kind of limit ourselves, but it would have to be awfully strategic for us to ultimately conclude something like that. But certainly, over the immediate term, we certainly wouldn’t expect to be paying multiples in excess of where our own stock trades, which is another hopping up point to just kind of engage a little bit in the conversation of – certainly, you and I think most of the folks on the call today, follow the transportation space pretty closely. And most every public transport company on the planet is hitting 2x, their all-time highs and our own stock has really not kept pace with that type of growth, although we have in fact delivered pretty extraordinary results. So we are hoping that the cumulative weight of the evidence and all we have been able to do and the fact that we are putting up these numbers and that we continue to have an under-levered balance sheet that will stop being the Rodney Dangerfield of third-party logistics in terms of kind of how we are valued in the marketplace right now.

[Jason Seidl:]

I hope the market takes notice tomorrow and opens up that’s for sure. Final question, I will turn it over to somebody else here. Bohn, most of the companies that we follow have been talking about strength for the remainder of the year. I am not really sure how people can have sort of that long of a looking glass into the future, but that seems to be the predominant thought out there. I would love to know your thought out there in terms of sort of sort of the backdrop for the entire logistics marketplace that you are seeing in North America?

[Bohn Crain:]

Well, I think all of the same kind of talking points that you have been hearing on the various earnings calls, capacity remains extraordinarily tight. And I don’t think anybody sees that going away near-term. And so – and before we know it, we will be kind of back in the middle of traditional peak season kind of approaching the holiday season. So, I think it’s not a stretch to conclude at least through calendar 2021. It should remain a particularly favorable market for the transports.

[Jason Seidl:]

I like. You emphasized traditional peak season. It seems like we have been peak season for a while now.

[Bohn Crain:]

Yes, exactly.

[Jason Seidl:]

Well, listen, I appreciate the time as always. Take care, guys. Be safe out there.

[Bohn Crain:]

Alright. Thanks, Jason.

[Operator:]

Thank you. Our next question today is coming from Mark Argento at Lake Street. Your line is live.

[Mark Argento:]

Hey, Bohn. Hey, Todd. Just wanted to dig in a little bit, maybe you could talk about a couple of areas or various areas you have seen some strength? Then Todd, could you just walk us through the balance sheet with some specificity in terms of where you guys are shipping down in terms of debt and availability? Thanks.

[Bohn Crain:]

Sure. Well, we have seen strength across a number of areas of the business, certainly in the – we have talked from time to time about the portfolio effect within our forwarding business, and while there’s been a few soft areas that’s been more than offset with the work and opportunity we’ve had around PPE and the fight against COVID and testing some of those areas. And I would even go a step further and say more recently, we’ve started to see some of the soft areas begin to see a little life. Retail store fixturing is an area that comes to mind, and I think we’re even starting to see some bookings around trade show which is kind of another laggard, but we’re starting to see some life there. Canada is doing exceptionally well, continues to deliver really impressive growth characteristics, driven by our bundling strategy with value-added warehousing around our core transportation service offering. And Clipper, notwithstanding weather and some of the challenges the rails have had in terms of capacity, even Clipper has put up some really good results in this environment. So really, across the board, we are seeing some really positive contribution from each of our groups in this environment. And Todd?

[Todd Macomber:]

Sure, sure. Yes. When we are looking at the debt, I mean, we are – obviously, we are in great shape. Overall cash flows for the quarter were actually negative, and that’s mostly due to the investment we put in the Canadian warehouse. We expect year-over-year – I mean as far as where we’ve gone from the beginning of the year to now, obviously, we’ve paid down quite a bit. I would expect go forward, we’re not going to have the same cash outflows that we did in the current quarter, and we will continue to pay down the facility. We’ve got a lot of – obviously, a lot of bandwidth for acquisitions, and we’re looking at that. But – so I would expect going forward that we’re going to have a bigger uptick quarter-over-quarter as far as the overall debt that we’re going to be paying that down.

[Mark Argento:]

That’s helpful. And then in terms of the M&A, I know, obviously, you guys spent quite a bit of time buying in some agents – independent agent stations or stores what’s the environment and the thought process there? Are you guys all killing it right now, so they are less likely to want to sell at this point? What’s the prognosis in terms of buying in some more independent agents, given that you know their business and the sort of retail phenomenon?

[Todd Macomber:]

Yes. I think it’s a mixed bag, right? It depends on the particular vertical or industry segments that an individual operator services. So we have quite a few stations that are, as you said, killing it in this environment. But we certainly have some stations that have big exposure to cruise line and trade show in some of those areas where they are looking forward to better times ahead. So it’s certainly not a one-size-fits-all in terms of kind of where the individual stations are sitting in the context of kind of the economic recovery. And then in terms of kind of our ability/willingness to support them and their own exit strategies, we stand ready to support our partners when they are ready. And we find ourselves engaged in those conversations from time to time, consistent with their own goals and objectives. So the one thing I can say for certain is none of us are getting any younger. And so ultimately, these things will ultimately convert at just a function of time and when they convert.

[Mark Argento:]

Okay. But just a follow-up Todd, on the balance sheet, so made an investment in some warehouse capacity, when do you anticipate kind of the flow-through from EBITDA to free cash flow is, i.e., is there incremental more that you guys are looking at for the rest of the year or what’s the kind of the ratio, EBITDA to free cash?

[Todd Macomber:]

No. I would say, the CapEx is going to be similar to what it was last year. And kind of traditionally, I mean, we are looking at probably $5 million outside of the – traditionally, what we would kind of see. This last year, more recently, we’ve made a big investment and Canada has been doing a really great job. And they have come to us and said, hey, we need more capacity. We need a bigger warehouse. And so we put an investment in that and that’s paying dividends or getting more throughput. So, that’s kind of a one-off compared to what we normally see. So, I don’t see anything outside of that. That’s kind of the biggest thing that I would say is different year-over-year. It’s just this big investment in the Canadian warehouse and a lot of that flowed through in this quarter.

[Mark Argento:]

Great. Thanks, guys and congrats on the great results.

[Bohn Crain:]

Thank you.

[Operator:]

Thank you. Our next question today is coming from Jeff Kauffman at Vertical Research. Your line is live.

[Jeff Kauffman:]

Thank you very much. Hi everybody, congratulations, terrific quarter. Bohn, good to see you and hear you on the call here. So, I want to circle back to shares for a second and then maybe ask a question about the comp in our upcoming quarter here. So I understand why the share repurchases are not happening, can’t happen, shouldn’t happen right now. But I agree with you. I mean your shares are trading at a pretty big discount out there, and it seems like a good use of capital. What is the existing share authorization or approval amount that is out there and kind of outside of strategic reasons, what would stop you from utilizing that once you get a green light?

[Bohn Crain:]

Yes. And I believe – and Todd hop in and correct me if I’m wrong, but I believe the authorization is for 5 million shares. And so that program has authorized, I believe, runs through 12/31. So we would – in theory, we could acquire up to 5 million shares under the existing authorization through December. And then we could refresh it or we could refresh it earlier, should that be the case. And again, not to kind of belabor the point, but if we’re approaching – well, I think kind of the – let me kind of frame this slightly more broadly. If we think our – and again, just to kind of keep the math simple, if we’re trending towards a $50 million run rate of EBITDA at a 3x multiple, that would give us debt capacity of $150 million. And what is our debt? I think it’s like $25 million or $30 million all in. So we’ve got substantial dry powder that we have the opportunity to deploy as we re-lever the business because effectively, we de-levered the business with our equity raise of 2015 and have never effectively re-levered the business since 2015. And so it will ultimately come back again to kind of the pipeline, what we see in the pipeline, how we think about capital allocation between compelling M&A opportunities or putting the capital to work to buyback our stock. And I don’t think we would ever buyback so much stock that we kind of gut at our financial flexibility to pursue M&A. So I don’t think you’ll ever see us kind of put all of our proverbial eggs in one basket kind of in that regard. And but I would fully expect if we don’t find compelling M&A opportunities to do, then we will take a good chunk of our excess free cash flows and buyback our stock.

[Todd Macomber:]

I want to say, I think it was $5 million in dollars, not...

[Bohn Crain:]

No, I believe...

[Todd Macomber:]

Is it 5 million shares?

[Bohn Crain:]

Yes, yes.

[Jeff Kauffman:]

I know it was shares. That’s why I was asking.

[Bohn Crainb:]

Yes, I believe its 5 million shares.

[Jeff Kauffman:]

Okay. So let me switch question two because I want to think a little bit about third quarter and then fourth quarter, where because of PP&E last year, we’ve got a very unusual comp. And also, there were portions of your business. You mentioned trade show, retail, cruise lines, you didn’t mention, but kind of fell off the cliff in fourth quarter last year and now they should, in theory, be coming back in some way, shape or form this year. So when I look at third quarter, normally, that’s a fairly weak seasonal quarter from a revenue perspective for you, but very, very strong. I was a little surprised more of it didn’t convert down to the net revenue line. So I’m assuming purchase transportation was difficult, weather was difficult. It was a very challenging quarter. But as we head into what should be one of your stronger seasonal quarters of the year, if I wanted to try and figure out what the right base revenue level is, how much excess PP&E revenue are we comping against? However you want to think about it, revenue that may not be in the numbers today. So we can figure out kind of what the right way to think about a sequential growth rate might be as we go from 3Q to 4Q?

[Bohn Crain:]

Yes. So Jeff, I think this next quarter is going to remain particularly challenging to model out. Because as you said, there is a – it’s kind of a – there is a number of things going on, right? So I would start with – we had significant on charter business last year and the comparable period in support of FEMA and PPE. So we’ve got a good chunk of effectively low-margin revenue in the year ago period that we are comping against. At the same time, I think I would – I’m expecting to see more of a carryover of this quarter with this really tight capacity market environment and customers having to respond to that and be nimble and more air freight opportunities. The West Coast ports continue to remain a mess. And so we’re going to have a lot of puts and takes in this next quarter that it’s really hard to – with any specificity call exactly where that’s going to play out. I was very as – I guess, as you would expect, I was really appreciative of the June quarter last year, but at the same time, I was looking ahead thinking, boy, that’s going to be a really tough comp next year as we’re now – and here we are soon to be reporting on that quarter. But with that said, this quarter ended March was really nothing short of spectacular from my standpoint. And so if we can continue anywhere near these trends, then we will have an opportunity to keep pace at least with – not necessarily at the top line revenue number. But as we’ve always said, we’re more interested in gross margin dollars, what’s happening in the gross margin dollar line item and getting as many of those gross margin dollars to the bottom line as we can. So, I don’t envy you and your modeling exercise for this quarter. And I think that...

[Todd Macomber:]

Yes. I want to echo that. I mean I looked to April and things are kind of echoing what we’ve been seeing. I mean I think there is a similar pattern. I mean, like Bohn said, the ports are jammed. We’re getting hit with surcharges coming out of L.A. There is just – things are really tight. I think it’s going to be very, very similar to what we’re seeing in Q3. And like a year ago, though, we had quite a bit – I mean, as Bohn mentioned, the charters that we had, we had $125 million or so in the business in the year ago in Q4, and that’s obviously low-margin business. On the flip side, the environment is really good, and we’re putting up good numbers. And so I share the same sentiment as Bohn that I think this next quarter is going to very much carry over from Q3.

[Jeff Kauffman:]

Okay. Thank you very much and congratulations.

[Bohn Crain:]

Thank you.

[Operator:]

Thank you. Our next question today is coming from Mike Vermut at Newland Capital. Your line is live.

[Mike Vermut:]

Hi, guys. How are you doing? Great quarter.

[Bohn Crain:]

Thank you.

[Todd Macomber:]

Thank you.

[Mike Vermut:]

So I am trying to put into perspective here. A few years ago, we were putting up $0.04 or $0.05 quarters and $4 million to $6 million EBITDA quarters. For the past, I guess, let’s say, four or five quarters, we’ve been doing double-digit earnings and pretty much double digit EBITDA. And our balance sheet was at a year ago, $50 million, $60 million of net debt, and now we’re approaching none. I feel like part of what people aren’t understanding or thinking about is, is Radiant operating wise? The environment is great, we all get that. But is there a new paradigm that Radiant is operating in? Yes, look, it may never – it may not be this strong forever. But are we in this new operating range and paradigm where the integration of the deals is going well, everything is running smoothly, we’re more efficient, we can price better, we have won new business and that’s something else you didn’t talk about yet on this call about the new business that we’ve won. And just how the company is running, I think that’s not being appreciated out there. And if you could just talk about that, like are we in this new paradigm range? We’re out of the $5 million quarters and we’re into the $9 million, $10 million, $11 million plus quarters? And I think that’s what people aren’t getting. Our price – our stock price is the same stock we were when we were doing a quarter of the earnings we are doing now. And our balance sheet was 4x as levered. And I think that’s the mismatch here that people aren’t getting.

[Bohn Crain:]

Yes. Well, Mike, this is Bohn. So I certainly share your frustration. And so on the one hand, our – I was looking at it today. I think year-to-date, our stock is up fairly significantly because we were trading down in the – with something that started with a 3. So we – at least over this past 12 months, we have seen a good improvement. But to your point and then the point that I made earlier on the call, at the end of the day, our stock price does not reflect all that we’ve accomplished at Radiant. And we certainly started this thing from scratch and have grown it and grown it over the years. But I think we certainly are a different company today than we were 5 and certainly, 10 years ago and just the relative scale and size of the business and our progress around integration and while this environment isn’t going to continue forever. One, I think it’s going to continue for a good while yet. And I’m not sure the best way to say this, but when it’s – when and if there is a reset, I think there is a lot of exposure and holding the names that have run-up as well as they have, and virtually no downside risk in the Radiant stock because we just haven’t enjoyed that pop. And I don’t have the multiples in front of me or kind of the relative multiples. But on a comparable basis, there is certainly room for our stock to move higher. And we – our approach, at least thus far, has been continue to execute, focus on execution, and the cumulative weight of the evidence will ultimately prevail and the market will take notice. And ultimately, there’ll be an unlocking of value and kind of a step function improvement in stock price. And hopefully, that will happen soon, but we certainly can’t make that happen, per se. All we can worry about are the things that we can control. And what we can at least somewhat control is how our business is operating and the financial results that we are putting up.

[Mike Vermut:]

Right. So I wasn’t really – I agree with that fully. What I’m really trying to get at is, when you look at the operating assets of the business and maybe try to strip out the phenomenal market that we’re into. How is the company operating now versus 2 years ago? I’m just trying to get, are we in a new paradigm operating at the company? Has Radiant operations and integration wheels fully in there, we have – the intermodal is running well. Is the company that – I feel like it is because in bad time, good times, you’ve been putting up great numbers. And I think there is a fundamental change at the company versus 2 years ago.

[Bohn Crain:]

Sure. Well, I mean another way to kind of get at that same concept would be, as we’re making good on our brand promise and converting agent stations the company on store and doing more acquisitions of company-owned stores, we’re slowly evolving from an agent-centric business to a company-owned-centric business, while certainly continuing to support and cultivate our agent network. I think close to 50% of our gross margins today, our company-owned store – we enjoy through our company-owned stores. So – and as we get better and better at managing our company-owned stores and as our company-owned stores do better and better which they have, we and the shareholders benefit from that. And that’s – at the end of the day, that’s what you’re really seeing in our comparative year-over-year financial improvement. It’s not so much growth in the agent stations. It’s the incremental success in our company-owned stores.

[Mike Vermut:]

Yes, I knew that. Yes. So another question, a lot of times we lag on our pricing ability, right, in our contractual rates versus what we’re purchasing at purchase transportation. And I feel like we – you’ve done phenomenal through this, but we have gotten squeezed, right? And you see that in our PPE cost. When we look out over the next two, three, four quarters, is that pricing of ours going to be catching up in your opinion? And then we will have a margin expansion story as well.

[Bohn Crain:]

That’s hard to say. I think I think the honest answer is, we will see some, but probably not as much as you would like to see. On the forwarding side of the business, most of that business is effectively priced on a spot market basis. So we receive costs from the customers. They are looking for a quote on the movement, and we’ve got to be market competitive to win that business. And so – and on the one hand, we can immediately pass-through fuel surcharge or peak season surcharges and all of those types of items to reflect the tightening market capacity, if the market will allow us to, right? But what we’re – part of the dynamic as well is because the market is so tight. There is a lot of incremental business opportunities coming to us because people are looking for capacity. And so for us, we see it as a real opportunity to regain old relationships, build new relationships and work our tails off to create some stickiness to this incremental new business so that wouldn’t if the market ultimately does soften that the customers stay with us because we will have a – we would earn that business relationship.

[Mike Vermut:]

Alright. So that was my next question. So in the last call, I think we were talking about some really good new business we won in the health care sector. How are a), those playing out? And secondly, are there some new large opportunities out there for us?

[Bohn Crain:]

Well, we’re getting a little granular at this point in time. But I would say our sales pipeline remains robust, probably as robust as it’s ever been. And so we’re optimistic about continuing to deliver the organic growth that we are seeing in a lot of these recent trailing 12-month numbers.

[Mike Vermut:]

Excellent. Okay, alright. Well, congrats guys. That was great quarter as you have been playing out. So, congrats.

[Bohn Crain:]

Thank you.

[Todd Macomber:]

Thank you.

[Operator:]

Thank you. We have no further questions in queue at this time. Do you have any closing comments you’d like to finish with?

[Bohn Crain:]

I do. Thank you. Let me close by saying that we remain very bullish on our prospects and the scalable non-asset-based platform that we’ve created at Radiant. Our unique multi-brand strategy in consolidating agent-based forwarding networks, industry-leading technology platform and low leverage on our balance sheet puts us in a unique position to navigate these uncertain markets and position ourselves to emerge from this pandemic as a stronger competitor. As the economy continues to recover, we believe this will create a great opportunity to support our customers and bringing their supply chains back online in this tight capacity market. At the same time, we remain patiently persistent in the pursuit of our vision to leverage our multi-brand strategy and scalable back office to bring our unique value proposition to the agent-based forwarding community, which we believe over time, will continue to deliver meaningful value for our shareholders, our operating partners and the end customers that we serve. Thanks for listening and your support of Radiant Logistics.

[Operator:]

Thank you, ladies and gentlemen. This does conclude today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.